If you're retiring, you need to make smart financial decisions to ensure you're comfortable in your later years. This is especially important when it comes to Social Security since you'll likely rely on these benefits to help you cover your costs -- especially since they adjust due to inflation and don't run out during your lifetime.
Unfortunately, Social Security's benefits program can be complicated, and not understanding the rules can have consequences. To make sure you don't face unpleasant surprises, here are three mistakes you can't afford to make.
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1. Not knowing your full retirement age
One of the biggest Social Security mistakes is not knowing your full retirement age (FRA) because it determines when you can retire without losing any of your standard benefits.
You'll get a benefit equal to a percentage of average wages over your 35 highest-earning years -- but this amount is available to you only if you get your first Social Security check right at FRA. Full retirement age is between 66 and four months and 67, depending on your birth year, while benefits can be claimed any time between age 62 and 70.
Although you may claim benefits at a different age, it's still important to know your FRA so you'll understand how it affects your benefit amount. If you start checks a month or more before FRA, your standard benefit will permanently shrink by 5/9 of 1% for each of the first 36 months and 5/12 of 1% for any additional month. But if you start checks even a month after, this delay permanently increases benefits by 2/3 of 1% per month up until age 70.
If you know your FRA, you'll understand the income Social Security will actually provide for you. And you can make sure you're comfortable with how your standard benefit will change based on when you get your first payment.
2. Not coordinating with your spouse
There are many different ways married couples can team up to maximize their Social Security income.
For example, a higher-earning spouse could put off claiming benefits while a lower-earning spouse could start their checks ASAP. This would allow the higher earner to maximize both their own monthly income and survivor benefits their partner gets. Or you could take another approach where the higher earner could start Social Security right away because this would open up the door to spousal benefits for their partner.
These are just two of many strategies for married couples to consider. You'll want to work together to explore the different options available to you. Not doing so could end up being a huge mistake that leaves you with less monthly income and fewer lifetime benefits.
3. Assuming Social Security will be your sole source of income
Finally, you absolutely don't want to make the mistake of assuming Social Security is sufficient to be your only income source because these benefits will replace only around 40% of your pre-retirement income. This is too little of your previous income to live on without major and uncomfortable sacrifices.
It's important to remember that Social Security is supposed to be part of a comprehensive retirement plan that includes your savings, as well as your benefits. By understanding the realities of the program, you can make sure you have plenty of supplementary funds so you can enjoy a retirement without financial stress.
